Deutsche And Other Scandal-Plagued Banks Should Learn From Novartis, Tenneco, And Volkswagen

Last week, Thomson Reuters was the host to “What banks can learn from corporations about culture reform.” This fourth annual event was standing room only and yielded thought-provoking comments not only from the panelists, but also from the audience participants. Stein Barre, Senior Vice President of Large Financial Institution Supervision at the Federal Reserve Bank of New York, moderated a panel comprised of chief compliance officers Dr. Kurt Michels (Volkswagen Group), Dr. Klaus Moosmayer, (Novartis), and Kim Yapchai (Tenneco, Inc.). All three companies have had a series of damaging scandals.

When I first heard about this event, it reminded me of what I studied about the Bauhaus movement when I spent a college semester in Berlin, that is, that it is very important to learn from different disciplines. As soon as the event started, it was very clear that when chief compliance officers from Novartis, Tenneco, and Volkswagen share their advice publicly about culture reform, bank executives should pay close attention.

Barre began the discussion asking the panelists what key themes they have learned in their compliance roles. Tenneco’s Yapchai earnestly said that when a former employer had a downsizing, she was sent to compliance. “I accidentally became a compliance officer. At first, I did not want to do this, but I want to take the groan out of compliance.” Novartis’ Moosmayer said that it was important to “never miss a good crisis to make things better.” He worries when he hears people say “I did this for the company.” He stated that at he felt that often people do not talk about corruption. “At Novartis, “we do talk about corruption.” Volkswagen’s Michels recounted how in 2011 on his first day as a compliance officer in 2011 befor joining Volkswagen, he walked toward his office and thought “Isn’t nice to see all these people here to meet me." While audience members erupted in laughter, he explained that he quickly realized that people had been locked out of doing transactions and needed compliance to approve deals. “This showed me that this will not work. It is business people who have to take operational decisions. This should not be done by compliance officers.”

Berre mentioned that at banks, also shorthand for the financial services industry, there tends to be “a star culture. Big producers are the stars.” There is also a lot of mobility. “Employees move from place to place. Bad apples can be bad apple carriers. Bankers are very transactional. They use money to make money. There are two pillars that every organization has to think about, rules and norms.” The panelists felt both were important and every organization has to find the right axis between rules and norms. “This is not about finger pointing,” said Moosmayer, “the pharmaceutical industry is being heavily scrutinized, but we are all in the same boat. This is not about teaching but about learning from each other. We live in a highly regulated industry. Rules can become a bureaucratic monster." For Michels, what was important was to always ask oneself “where are the risks? Identify them. Do we need rules or are rules being generated without knowing the risks?” He advocated for not having such extensive rules, but stated that people need to understand the context of rules. “You cannot control for what people will find ways around. You have to work on rules and how people will deal with rules. Germany has very strong tax laws, but people compete with tax avoidance. A huge number of rules will not help you. You need management which is walking the talk. If management is not following the rules, this is a problem.” Yapchai concurred that “we can paper the company with rules to the moon and back. We need a balance.”

All three panelists had very good recommendations for any type of company or bank that wants to change its culture and create good compliance:

Work on employees living the company values and check whether senior management is actively grooming others.

Ask what is the purpose of the company? What are we doing?

“We are extending the life of patients,” said Moosmayer. “What kind of people do we have to achieve this? Cynical people are the biggest enemy. Changing culture is a long journey. How we speak and listen to each other is very important.

Watch carefully whom you hire and how you retain employees.

“Know the background of the people you hire,” advised Michels. “Discuss integrity with them. Whom do you promote? Are you promoting only those with big success or sustainable success? You can promote the people with the biggest numbers and then shortly afterward, the prosecutor will visit you. Cultural changes take many years. You cannot just pull a trigger that says ‘change.’

Work on little things to help leaders.

Yapchai explained that there are little things that compliance can do to help companies’ leaders. She recounted research that showed that when integrity is mentioned, discoveries of misconduct rise. Now you tackle and solve them.

Have a management of consequence.

“If there are no consequences, rules will not work,” said Michels. “You need to communicate these rules. Whether you are a manger or not, rules apply. If a top manager fails, it is worse, because s/he is an ambassador of culture and integrity.”

Measure culture and integrity.

It is important to do pulse checks with employees as well as to set up a protected environment where people can be whistle blowers and give feedback. Yapchai told the audience that Tenneco has a hotline for whistleblowers. “You need manager buy in. If the attitude is ‘we do not air our dirty laundry,” then nothing happens. What are the rates of calls you are getting? If you are not getting any calls, maybe your phone lines do not work…or maybe employees do not know how the hotline works.”

Ask which senior leaders have left and for what reason. Was it for more money? Did they not buy in to our values?

Do not separate society and the corporation.

Society and the corporation are intertwined. It is really difficult to have two different sets of values.

Explain to employees relevant examples of what fraud does to the company and to them.

Yapchai stated that certified fraud examiners studies show that “companies lose 3-5% in revenues due to fraud. What if we are losing 1%? That is a lot of money that we could use to pay bigger bonuses, to spend more on our company, and to invest in research and development. Employees can catch more than auditors can.”

Remove risk silos.

Have risk and strategy professionals speak to each other periodically.

Use bad cases at your firm to educate your employees.

“Visible organizational justice is the best evidence that your compliance program is serious,” said Yachai.

When the Question and Answer session opened up, I told the panelists “You have been very forthcoming about your compliance challenges. What would you recommend to banks specifically which have compliance challenges and which are scandal riddled, like Deutsche Bank? Moosmayer responded, “I do not talk about other companies.” He went on to say that “It starts with acknowledgment. You need to say that you have not lived up to the expectations of society. You have to acknowledge that you have trust issues. This is a journey. This not something you leave after six months. Give us your acknowledgement about problems. Just being defensive is not good.”

Michels recommended that it is important to” look at processes. Ask yourself, are you addressing the right risks? Do not just focus on what happened. Look at other risks now that might be there and that could lead to future incidents. Ask yourself, what is the purpose of your company? It is important to have a code of conduct.” He explained that “we used to have 16 codes. We now have one. It is now clear what the code is and the principals that we agree on. Everyone in the company is responsible for compliance and integrity. If you are asking, who is responsible? This would be wrong. Everyone is responsible. Be honest with your past, do not repeat mistakes. Yapchai emphasized “Do not waste a good crisis. Yes, it is painful, but a crisis can be an accelerator for positive changes. Look at what is your self-image. Often, others’ perception of us is not what we have as our self-image.”

When I walked in very early to the event, I could not help but notice that Sam Cooke’s 1960’s hit single “Chain Gang” was playing as the audience arrived.

“That's the sound of the men working on the chain ga-a-ang

That's the sound of the men working on the chain gang”

One of the biggest observations and complaints from financial reformers is that not a single high level executive has gone to jail after the global financial crisis. While an audience member did pose a question about this, it was not a central theme in this conference. If bank executives do not heed the advice of these corporate chief compliance officers, repeat offenders might need serious jail terms in order to reform bank culture.